Falcon farms down another 7.5% of Beetaloo to Origin Energy

Falcon Oil & Gas announced on Tuesday that its 98%-owned Australian subsidiary has executed an agreement which includes a restated farm-out agreement and joint operating agreement with Origin Energy, to farm down 7.5% of Falcon’s 30% participating interest in the exploration permits of the Beetaloo sub-basin in the Northern Territory.

The AIM-traded firm noted that itself and Origin were still obliged to seek the Northern Territory government and TSXV stock exchange approvals for the agreements.

It said that with those approvals, the participating interests of the respective partners would be Falcon Australia at 22.5%, and Origin at 77.5%.

In terms of consideration, it said Origin would increase the gross cost cap of the work programme by AUD 150.5m.

The previous farm-in arrangement included a stage 2 gross cost cap of AUD 65.3m, and a stage 3 gross cost cap of AUD 48m, or AUD 113.3m in total.

Under the agreements, the stage 2 and 3 gross cost caps would be combined and increased by AUD 150.5m, the board explained, to AUD 263.8m, which would be applied to the completion of the stage 2 and 3 work programmes.

Amounts of the overall cost cap not utilised during stage 2 3 would be applied to future work programmes, the board explained, adding that expenditure above the cap would be borne by the joint venture partners in proportion to their participating interests.

Origin would assume 25% of the cost of Falcon’s remaining call option to reduce the overriding royalties with the TOG Group, the company added.

The cost to Falcon Australia, should it wish to exercise the call option, would reduce from $7.5m to $5.625m, in line with its reduced participating interest.

On the operational front, Falcon said drilling operations on the Kyalla 117 N2-1H ST2 well were successfully completed in February, reaching a total measured depth of 3,809 metres, including a 1,579 metre lateral section from 90 degrees in the Lower Kyalla formation.

Water impact monitoring bore drilling was completed in March, and final preparatory work was continuing ahead of the next stage of operations.

On 26 March, in response to the Covid-19 coronavirus pandemic, Origin confirmed forward operations in the Beetaloo had been temporarily paused.

As a result, Falcon said Origin was expecting a delay to the Kyalla Well stimulation and extended production test of at least three months, to now occur in the second half of 2020, and the drilling of the Velkerri Flank well in the first half of 2021.

“Falcon Australia’s farm down of 7.5% of its participating interest in the permits for a further gross cost cap of AUD 150.5m, provides Falcon with additional funding that can be applied to the completion of the stage 2 and 3 work programmes,” said chief executive officer Philip O’Quigley.

“It also demonstrates Origin’s continued commitment to the Beetaloo Sub-basin.

“This farm down together with Falcon’s unaudited cash reserves of $11.5m at 31 March leaves us well positioned to participate in the future upside potential of the Beetaloo.”

At 0954 BST, shares in Falcon Oil & Gas were up 6.13% at 6.58p.